Swiss lawmakers call for softer regulation in victory for UBS
Proposal is a boost for Switzerland’s largest bank and chief executive Sergio Ermotti
UBS has won a significant victory in its battle with the Swiss government, after influential lawmakers backed a major watering down of proposed regulations that would see requirements for the toughest form of capital slashed by half.
The decision is a boost for Switzerland’s biggest bank and its chief executive Sergio Ermotti, who called the government’s plans excessive, warning they would damage both UBS’s international competitiveness and Switzerland’s standing as a global financial centre.
At the heart of the dispute is a federal government proposal to force UBS to fully capitalise its foreign subsidiaries at its Swiss parent using common equity tier one (CET1), the highest-quality and most expensive form of bank capital.
The dispute has become one of Switzerland’s biggest financial policy battles, casting uncertainty over UBS and its shareholders as they await clarity on the bank’s future capital requirements.
UBS’s $1.7tn of assets exceed the size of the entire Swiss economy, leaving policymakers grappling with how to make the bank safer without damaging the competitiveness of one of the country’s most important companies.
Under the compromise proposal, which was confirmed on Monday by government sources, UBS would still have to fully back its foreign subsidiaries, but would be allowed to meet up to half of the requirement with additional tier 1 (AT1) bonds rather than top-quality common equity.
JPMorgan analysts have previously estimated that under this scenario, UBS would only need to raise an additional $400mn in CET1 capital, while raising about $16bn of new AT1 bonds.
The government proposed the tougher rules as the centrepiece of an overhaul of banking regulation following the collapse of Credit Suisse in 2023, which ended with UBS taking over its longtime rival in an emergency rescue engineered by Swiss authorities.
Bern argues that the crisis exposed weaknesses in Switzerland’s “too big to fail” regime and that fully capitalising foreign subsidiaries would better protect the Swiss parent from losses elsewhere in the group, which also has a big presence in regions including the US and Asia.
But Switzerland’s push for tougher rules comes as other major financial centres, including the US, UK and EU, move to ease or simplify parts of their banking regulation in an effort to boost competitiveness.
AT1 bonds remain politically sensitive in Switzerland after regulators wiped out around SFr16bn of the instruments during the rescue of Credit Suisse, a decision that has been challenged by investors in the courts.
The move was ruled unlawful by the Federal Administrative Court last October and is now awaiting a decision from the Federal Supreme Court.
UBS, which has publicly criticised the rules, said the original measure would require it to hold about $20bn in additional capital. The bank described the proposal as excessive, disproportionate and out of line with international standards.
Monday’s recommendation suggests UBS has made significant headway with lawmakers. But any change to the government’s proposal will ultimately need to win the support of both houses of parliament, leaving several stages of the fight still to come.
The nonbinding nod from the more business-friendly Economic Affairs and Taxation Committee in the upper house is only the first step in a parliamentary process that is expected to run for months. The full upper house is due to debate the reforms in mid-September, when lawmakers can accept, reject or change the recommendation. The proposals would then go to the lower house, where they are expected to be considered later this year.
The government has previously rejected allowing UBS to meet the new requirement with a mix of equity and debt, arguing that anything short of full backing with CET1 capital would be ineffective. The finance ministry declined to comment on Monday’s recommendation. UBS did not respond immediately to a request for comment.